Archive for the ‘Liquidation’ Category

Introduction

A Members’ Voluntary Liquidation (MVL) is a formal process for bringing the life of a limited company to an end and distributing the remaining assets to shareholders in the most tax efficient way. This can be done for reasons of retirement, an intractable shareholder dispute or simply because the company is no longer needed. The company must be solvent – i.e. it can afford to pay all of its creditors including any tax becoming due and still have funds left for the shareholders.

Introduction

Closing down an insolvent company can seem like a minefield, and it is often difficult to navigate your way through all the jargon. In this article we discuss the differences between dissolution (strike off) and liquidation (winding up), and outline the key features of each option.

We’re often asked about the difference between Liquidation and Administration and when one should be used over the other. They’re both formal insolvency procedures to help address a company that is insolvent, but there are significant differences between the two.

Introduction

There are two ways an insolvent company can be liquidated – either voluntarily by the directors instructing an Insolvency Practitioner to convene the relevant meetings of shareholders and creditors; or compulsorily, by a creditor petitioning at court for the winding up of the company. In both cases it may well be that there are sufficient assets realised into the liquidation for payments to be made to some or all creditors. However there is a strict hierarchy in place which dictates the order within which creditors are paid and the aim of this briefing note is to provide an overview of the order of payments.

It was recently reported that in 2014 HMRC applied to shut down 3,000 businesses due to unpaid tax bills. Of the 3,000 winding up petitions served, HMRC were successful in closing 1,887 firms. Many of these firms will have allowed the action to take place whilst others would have sought to avoid this, possibly by initiating their own insolvency solution such as a Company Voluntary Arrangement (CVA) or Creditors Voluntary Liquidation (CVL).